China/Rio: It is to be hoped that the four Rio Tinto staff arrested in China on charges of bribery are innocent, as their employer claims. But this odd case looks like part of a trend. China’s policymakers, emboldened by economic successes at home, care less and less about foreign censure. At best, this thinking is flawed; at worst premature. Chinese authorities are right to investigate potentially corrupt business practices. Yet the handling of the Rio situation — behind the gag of “state secrets” — suggests political rather than precise legal considerations. The message is that foreign suppliers should think twice before trying to dictate terms to China’s huge steel industry — or to anyone in China with political clout.
The campaign against iron ore producers can only go so far. China can antagonise commodity suppliers, but the population won’t become wealthy without vast quantities of foreign iron ore. It’s much the same with arguments from Chinese politicians and academics on replacing the dollar as the global reserve currency. They might want to push the US around, but for now China is still buying dollars.
Domestic politics helps explain why the government is willing to push rhetoric ahead of reality. Tough talk with foreign suppliers and governments sends the message to the home crowds that Beijing is in control. That helps when managing ethnic and unemployment-related unrest is a priority.
But economics shows the folly of such triumphalism. Exports, even after falling by a fifth so far this year, remain a major engine of China’s growth. They employ around a tenth of the nation’s workforce — and a far higher portion of skilled urban workers. Other countries can’t choose how Chinese lawmakers treat their companies — but they can decide how to treat Chinese goods. The People’s Republic can’t afford protectionist measures in countries whose business it still needs. Once China has achieved near self-sufficiency, it may be able to afford to behave almost how it likes. Rio should be cheered that such a moment hasn’t yet arrived.
